ED & F Man Sugar Ltd v Belmont Shipping Ltd

This is an application pursuant to section 68 of the Arbitration Act 1996 challenging an award of Mr. Farrington and Mr. Baker-Harber on the ground of a serious irregularity. An application for leave to appeal pursuant to section 69 of the Arbitration Act 1996 was unsuccessful. The suggested serious irregularity is that the tribunal failed to comply with its duty to act fairly as between the parties pursuant to section 33 of the Arbitration Act. That failure is alleged to have occurred when the arbitrators, who were dealing with a demurrage claim on documents alone and were aware, it is said, that the Claimant was ignorant of an argument based on a reported decision, failed to enquire of the Claimant whether it was advancing any argument based on that decision. Mr. Timothy Young QC, counsel for the Claimant, said that the application raised an important issue of principle with regard to the conduct of arbitrations on documents alone notwithstanding the modest amount at stake.

E D & F Man Sugar Limited, the Claimant, was the charterer of the vessel MV Amplify. Belmont Shipping Limited, the Defendant, was the disponent owner of the vessel. By a charterparty on an amended Sugar Charter Party 1999 form dated 30 July 2009 E D & F Man chartered the Vessel for a voyage from Santos, Brazil to, in the event, Paradip and Haldia, India. Clause 19 governed load port laytime; Clause 23 dealt with the calculation of demurrage and despatch.

The Vessel arrived at Santos, the load port, on 16 September 2009. NOR was tendered immediately (and was re-tendered on 19 September). The charterers denied that the NOR was valid because the Vessel’s holds were not fit for cargo. A surveyor inspected the Vessel on the 18 September and noted certain defects. Those were corrected and the Vessel was approved ready to load at 1140 on 20 September. The vessel did not berth until 2340 on 5 October 2009.

Following the completion of loading at 0545 on 7 October 2009 the owners claimed demurrage. It was agreed that the load port laytime was 5 days 3 hours. There was a dispute as to when laytime began.

Skuld, acting on behalf of their members, the owners, submitted their Claim Submissions by letter dated 14 April 2010. They contended that laytime commenced at 1400 on 16 September 2009. Femis Limited, acting on behalf of the charterers, submitted their Defence Submissions by letter dated 19 May 2010. They denied that laytime commenced on 16 September 2009 but accepted that “an NOR was good on 21^st September 2009 (normal office hours) and laytime commenced at 1400 as per Charterers’ calculation”. That calculation showed demurrage due at the loading port in the sum of US$13,263.89. Skuld provided Reply Submissions dated 2 June 2010 and maintained that laytime commenced on 16 September 2009. Femis submitted further comments by letter dated 7 June 2010. No new case on the commencement of laytime was indicated. By letter dated 9 June 2010 Skuld replied to those further comments and maintained their case on laytime.

The arbitrators made and published their award on 25 October 2010. They recorded that neither party had requested an oral hearing. They held that neither the NOR dated 16 September 2009 nor that dated 19 September 2009 was valid. The vessel was not ready to load. They then said:

“13.

However, the Claimants did not deliver a further Notice of Readiness after the vessel had been approved at 1140 on Sunday 20 September. We consider that the Respondents are correct that if the Claimants had then delivered a Notice of Readiness, it would have been effective at 0800 on 21 September with the result that laytime would have commenced at 1400 that day. We therefore find that at Santos the vessel was on demurrage for 1 day 7 hours 50 minutes at a cost of US$13,263.89. The Respondents did not rely upon the decision in the Happy Day [2002] 2 Lloyd’s Rep. 487 so the potential consequences of that decision have not affected our conclusion.”

It was submitted by Mr. Young that the arbitrators were obviously aware that there was an argument, following the decision in the Happy Day, to the effect that laytime commenced when loading was commenced on 5 October. On that basis no demurrage would have been due at the loading port. Indeed despatch money would have been due to the charterers. It was further submitted that the arbitrators appreciated that Femis Limited, acting on behalf of the charterers, were not aware of that argument. In those circumstances it was submitted that the arbitrators’ duty pursuant to section 33 of the Arbitration Act was to enquire of Femis Limited whether any reliance was being placed on the decision in the Happy Day. Their failure to do so was a serious irregularity which caused the charterers substantial injustice.

Mr. Young said that had there been an oral hearing the matter would obviously have been raised and so there would have been no serious irregularity. The application therefore raises, it was said, an important issue of principle as to the conduct of arbitrations on documents alone.

Mr. Young found support for his argument in a comment made by Waller LJ in the Magdalena Oldendorff [2008] 1 Lloyd’s Rep. 7 at paragraph 42 as follows:

“If an arbitrator appreciates that a party has missed a point then fairness requires the arbitrator to raise it so that the party can deal with it.”

Mr. Ho, counsel for the owners, submitted that the arbitrators had no duty to improve a party’s case by suggesting arguments that the party has not advanced. He relied upon an observation by Coulson J. in F Ltd. v M Ltd. [2009] 1 Lloyd’s Rep. 537 at paragraph 33:

“It is not, I think, for the arbitral tribunal to hunt through the contract and find other ways in which the claimant’s claim might be put, and then offer the claimant a further opportunity to make submissions on any provision thereby identified. In an adversarial system it is for the claimant to identify the ways in which it puts its case.”

In any event, said Mr. Ho, there was no substantial injustice because the charterers cannot sensibly characterise their own failure to take a point as a substantial injustice.

Section 33 of the Arbitration Act 1996 provides, so far as material, as follows:

“(i)

The tribunal shall-

(a)

act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent.”

Thus the arbitrators had a duty to give the charterers a reasonable opportunity to put their case. The arbitration was conducted on documents alone. The parties put their respective cases by way of written submissions. The charterers did so by means of a letter dated 19 May 2010 written by Mr. L.A. Roccia, a member of the Chartered Institute of Arbitrators, on behalf of Femis Ltd. The letter consisted of 5 pages and was served with a bundle of 110 pages of supporting documents. The question of a valid NOR was dealt with in paragraphs 6-11. The owners’ case that a valid NOR was given on 16 September 2008 was denied by reference to the facts, the effects of clauses 19 and 53 of the charterparty and the decision of Lord Denning MR in the Tres Flores [1973] 2 Lloyd’s Rep 247. As already noted it was accepted that “an NOR was good on 21^st September 2009 (normal office hours) and laytime commenced at 1400 as per Charterers’ calculation”. Further comments were made by letter dated 7 June 2010 at the end of which Mr. Roccia asked the tribunal to proceed to a reasoned award. In the light of those written submissions it would appear to me impossible to suggest that the arbitrators failed to give the charterers a reasonable opportunity of putting their case.

The arbitrators noted in their Reasons that “the Respondents did not rely upon the decision in the Happy Day [2002] 2 Lloyd’s Rep. 487 so the potential consequences of that decision have not affected our conclusion.” It would appear likely that the arbitrators appreciated that it was possible to mount an argument based upon the Happy Day to the effect that in the absence of a notice of readiness laytime commenced, not when the vessel was ready to load, but when the vessel in fact commenced loading. They may also have thought that the charterers, or those responsible for their submissions, were not aware of that argument. However, they did not alert the charterers to that possible argument.

I do not consider that section 33 of the Arbitration Act required the arbitrators to alert the charterers to that argument. The charterers had put forward their case by explaining why they denied the owners’ case on the commencement of laytime and conceding that laytime commenced at 1400 on 21 September 2009. Had the arbitrators alerted the charterers to an argument based upon the Happy Day they would have been giving E D & F Man an opportunity to put a case different from that which they had chosen to put. I do not consider that that is encompassed by the duty to give the charterers a reasonable opportunity to put their case.

In the Magdalena Oldendorff Waller LJ observed that “if an arbitrator appreciates that a party has missed a point then fairness requires the arbitrator to raise it so that the party can deal with it.” However, it is necessary to understand the context in which that observation was made. In that arbitration one issue between the parties was whether, in the absence of a breach of warranty by the owners, the vessel would have left Novolazerevskaya (“Novo”) before 30 May and escaped the ice belt which encircled Antarctica. This was a causation issue. The arbitrators (one of whom was myself) held that the vessel would have done so because, in the absence of a breach of warranty, she would have left Novo on 29 May, 17 hours earlier than she in fact did, and escaped the ice belt. Counsel for the owners (as it happens Mr. Young QC) argued that the owners had not had a reasonable opportunity to deal with the “17 hour point” and that if they had had such opportunity they would have said that the vessel would not have left Novo any earlier than she did because of hurricane force winds. Waller LJ said that the tribunal had reasonably understood that the charterers had advanced a case that the vessel would have left Novo “a day or so” before 30 May. He further said that there was no basis for saying that the tribunal thought counsel for the owners (“who had been making many points for the owners to defeat the charterers’ claim on causation”) had missed the point. Waller LJ did not consider that the tribunal had acted unfairly in not saying something to counsel about the point: “It would be placing an unfair burden on any tribunal where (I stress) they do not appreciate that a point is being missed, to check whether leading counsel understands what is being said.”

Thus, when Waller LJ observed that “if an arbitrator appreciates that a party has missed a point then fairness requires the arbitrator to raise it so that the party can deal with it”, his comment was made in the context of a point which was in issue and which was required to be dealt with. The context of the present case is different. What was in issue in the present case was whether a valid NOR had been given on 16 September 2009. The charterers had a reasonable opportunity to deal with that point and in so doing expressly accepted that laytime commenced on 20 September 2009. No case was made by the charterers that laytime did not commence to run until 5 October 2009 and so such a case or point was not in issue.

I do not consider that Waller LJ’s observation can be read as saying that where a party has made a concession and where the arbitrators appreciate that it is arguable that such concession need not have been made the arbitrators are under a duty to raise such argument so that the party can decide whether to withdraw its concession. Waller LJ’s observation does not therefore, in my judgment, assist Mr. Young’s argument that the arbitrators acted in breach of their duty pursuant to section 33 of the Arbitration Act 1996.

For these reasons I do not consider that there was a breach by the tribunal of its duty pursuant to section 33 of the Arbitration Act 1996. It follows that there was no serious irregularity.

It is unnecessary to decide whether, assuming there was a serious irregularity, there was a substantial injustice. I shall therefore state my conclusion on this shortly. It is well-established that section 68 was “designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”; see the DAC report quoted by Lord Steyn in Lesotho Highlands Development Authority v u Impregilo SpA [2006] 1 AC 221 at para.27. I am unable to accept that, where a tribunal has decided the issue placed before it and given effect to a concession made by a party, that party can claim to have suffered a substantial injustice because it has not been alerted to an argument that it could have made a more favourable concession. It can hardly be said that giving effect to a concession is an example of “an extreme case” which “justice calls out” to be corrected. The arbitrators had before them a concession made on behalf of an experienced charterer.

Arbitrators are not barred from asking a party whether it has considered raising a different case from that which it has advanced but section 33 of the Arbitration Act 1996 does not oblige them to do so. As Mr. Young observed they often do so when there is an oral hearing. Such questions may be asked by a tribunal anxious to understand the basis upon which a case is being advanced. Such questions may also be asked where the arbitration is on documents alone. But in such cases the parties are often concerned to keep costs to a minimum because the amount in dispute is modest. In such circumstances it is understandable that a tribunal will be reluctant to ask a party, which has put in a detailed submission in a modest case, whether it wishes to run a different case. A tribunal may also have in mind the observation of Colman J. in Pacol v Rossakhar [2000] 1 Lloyd’s Rep. 109 at p.115 that where arbitrations are conducted on documents alone it is particularly important that arbitrators should be alive to the dangers of introducing into their awards matters which have never been in issue between the parties. If they do introduce such matters they must give the parties an opportunity to address such matters and if necessary to adduce further evidence with regard to them. The giving of such an opportunity will add to the costs of a modest case. These considerations serve to emphasise why the present case can hardly be said to be an extreme case which justice calls out to be corrected.

For these reasons I must dismiss the challenge to the award under section 68 of the Arbitration Act 1996.